First half report 2010 - Lundbeck reports strongly increasing profits with EBIT growth of 30%
| H. Lundbeck A/S (Lundbeck) reports second quarter revenue of DKK 3,767 million. An increase of 7% compared to the second quarter results of 2009. Profit from operations was DKK 936 million, an increase of 30% compared to the same period last year. The EBIT margin for the quarter increased to 24.8% up from 20.4% in 2009.
* Constant exchange rates In connection with the second quarter report, Lundbeck's President and CEO Ulf Wiinberg said: "We are pleased to deliver yet another quarter with continued progress in our core financials, despite challenges from health care reforms and generic competition. In development, we have also experienced significant progress during the quarter, with encouraging clinical results for both clobazam in the US and escitalopram in Japan. Furthermore, I am delighted that the development program for Lu AA21004 is progressing, and I am confident that we will bring Lu AA21004 to the market according to plan." Management review Financial highlights and key figures
1) Definitions according to the Danish Society of Financial Analysts' Recommendations & Financial Ratios 2010. Lundbeck's development portfolio Lundbeck is developing a number of new and promising pharmaceuticals for the treatment of central nerve system (CNS) disorders. The pipeline projects are targeting areas where Lundbeck currently have a market presence such as depression, anxiety and other psychiatric disorders - as well as new areas including epilepsy, stroke and alcohol dependence. Lundbeck's pipeline includes: Six compounds in clinical phase III Eight compounds in Lundbeck's pipeline have demonstrated proof of concept, and two of the five compounds in phase II are expected to enter clinical phase III later in 2010. Following discussions with the U.S. Food and Drug Administration (FDA) regarding Serdolect®, Lundbeck has been given the option to perform further studies to secure an approval in the US. However, in view of the timing and the other investment opportunities in the pipeline, it has been decided to cease the project and the Pipeline development is summarised as follows: Clinical phase III In the four-armed placebo-controlled phase III study, including add-on treatment in 238 patients with Lennox-Gastaut Syndrome, clobazam met its primary endpoint and was further supported by results for several key secondary endpoints. Top-line data demonstrated that the two highest doses of clobazam, tested versus placebo, showed a highly statistically significant reduction in the number of drop seizures (average per week) from the 4-week baseline period to the 12-week maintenance period. In the study, clobazam was generally well tolerated and the overall safety profile was positive. Lundbeck expects clobazam to provide additional growth opportunities for the US operation as well as for the entire group. Also in May 2010, Lundbeck announced the results from the pivotal study with escitalopram in Japan. The results were positive and according to expectations. The study was initiated in April 2008 by Mochida Pharmaceutical Co., Ltd. (Mochida) and was a phase III, placebo-controlled study in major depression (MDD). Approximately 480 patients with MDD were randomised to receive escitalopram (10 or 20 mg), paroxetine or a placebo. Following the results of the pivotal trial in Japan, Mochida will proceed towards a regulatory filing of escitalopram in Japan. If approved, Lundbeck expects that escitalopram in Japan could be an important contributor to Lundbeck's financial performance in the coming years. The new phase III programme with Lu AA21004 in Major Depressive Disorder (MDD) has started. The programme consists of four clinical phase III studies, which will include approximately 2,000 patients with moderate to severe depression. In order to explore the full potential of Lu AA21004, the planned doses are 10 mg, 15 mg and 20 mg. The programme is based on the clinical data obtained to date, which shows positive results for the potential efficacy and the tolerability profile of Lu AA21004. The phase III programme aims to recruit patients from Europe, as well as the US and Canada in cooperation with our partner Takeda. The phase III programme studying the use of nalmefene in alcohol dependence is progressing as planned and two of the three studies are ahead of schedule and all three studies have finished recruiting patients. Data from the clinical programme is expected around year-end 2010. Expectations regarding filing in Europe in the second half of 2011 are unchanged. The phase III studies for desmoteplase in ischaemic stroke, DIAS-3 and DIAS-4, have experienced slow patient recruitment. Additional centres will be opened and other initiatives are ongoing in order to speed up recruitment. Desmoteplase could be eligible for priority review by the FDA. Clinical phase II Lundbeck is finalising the plans for additional clinical work with zicronapine, including plans for the pivotal programme. Zicronapine is in development for the treatment of schizophrenia. Lu AA24493 is in clinical phase II in the treatment of Friedreich's ataxia and in clinical phase I in the treatment of acute ischaemic stroke. Ongoing studies in both programmes are expected to be concluded in the second half of 2010. Financial forecasts and forward-looking statements Financial guidance 2010
Long term financial forecasts Forward-looking statements Forward-looking statements are subject to risks, uncertainties and inaccurate assumptions. Actual results may differ from expected results. Factors that may affect future results include fluctuations in interest rates and exchange rates, a delay in or failure of development projects, production problems, unexpected contract breaches or terminations, government-mandated or market-driven price decreases for Lundbeck's products, introduction of a competing product, Lundbeck's ability to successfully market both new and existing products, exposure to product liability and other lawsuits, changes in reimbursement rules and governmental laws and their interpretation and unexpected growth in costs and expenses. Revenue
Revenue from Cipralex® (escitalopram) for the treatment of depression and anxiety rose to DKK 1,507 million, an increase of 12% or 5% at constant exchange rates. Revenue from Lexapro®, escitalopram marketed in the US by Forest Laboratories, Inc. (Forest), was DKK 630 million for the quarter. This was an increase of 1%, or a decrease of 13% at constant exchange rates compared to the same period last year. Ebixa® (memantine), for the treatment of Alzheimer's disease, generated second quarter revenue of DKK 610 million, an increase of 13% compared to the same period last year. The increase corresponds to 9% growth at constant exchange rates. Lundbeck has the marketing rights to Ebixa® in most of the world, except Japan and the US. Revenue from Azilect® (rasagiline) for the treatment of Parkinson's disease rose 44% during the period to DKK 267 million (42% at constant exchange rates). Lundbeck has commercial rights to Azilect® in Europe (in co-promotion with Teva Pharmaceutical Industries Inc. in France, Germany and the UK) and some markets outside Europe, including six Asian countries. Xenazine® 1 (tetrabenazine), for the treatment of chorea associated with Huntington's disease, generated revenue of DKK 147 million in the second quarter, an increase of 82% or 70% at constant exchange rates compared to the same period last year. Xenazine® was launched in November 2008 in the US. Sabril® (vigabatrin), for the treatment of refractory complex partial seizures (rCPS) and infantile spasms (IS), generated second quarter revenue of DKK 37 million. Sabril® was launched in the US in September 2009. Other pharmaceuticals, which comprise the remainder of Lundbeck's products, decreased 30% to DKK 514 million. Other revenue was DKK 55 million, compared to DKK 24 million for the second quarter of 2009. The increase is due to income from Elaiapharm, acquired in October 2009. Europe Revenue from other pharmaceuticals was DKK 229 million, a decline of 11% at constant exchange rates.
Cipralex® generated second quarter revenue of DKK 1,001 million in Europe and continues to gain market shares and enforce its leading position in the European antidepressant market. Revenue was driven by the continued growth in most major markets supported by the increasing understanding of Cipralex® as a leading antidepressant. At the end of May 2010, Cipralex® held a market share in value of 20.5% of the European antidepressant market, compared with a market share of 18.8% a year earlier. Revenue from Ebixa® rose to DKK 509 million during the period, and at the end of May 2010 the product held 17.9% of the European Alzheimer's market, compared to a market share of 16.4% at the same time in 2009. In Italy, Ebixa® continues to experience very positive growth since the product obtained reimbursement in April 2009. Ebixa® has a market share of 26.3% in the Italian Alzheimer's market (May 2010) compared to a market share of 18.1% one year ago. The launch of the Ebixa® Once Daily formulation in Italy in April 2010 has supported sales even further. Memantine, the active ingredient in Ebixa®, is the second-most prescribed pharmaceutical in Europe for the treatment of Alzheimer's disease. Second quarter revenue from Azilect® amounted to DKK 229 million, an increase of 43% at constant exchange rates. Azilect® now holds a market share in value of 9.8% of the total European Parkinson's market (May 2010). This compares to a market share of 7.6% at the same time in 2009. Azilect® continues to gain market shares in Europe, as it is increasingly recognised as an effective and easy-to-administer medication. In the beginning of January 2010, Azilect® received public reimbursement in France, and the product continues to experience a very solid uptake. The launch of Azilect® in France is now the most successful launch of a branded anti-Parkinson's medication to date, and at the end of May 2010 Azilect® had a market share in value of 9.7% in France. The Parkinson's disease market in France generates annual sales of more than DKK 750 million. USA
Revenue from Lexapro® was DKK 630 million, an increase of 1% compared to the same quarter last year, but down 13% at constant exchange rates. Revenue was impacted by lower bulk deliveries compared to the same quarter last year. At the end of May 2010, Lexapro® held a market share in value of 23.4% of the US aggregate market for antidepressants, compared to a market share of 23.8% in May 2009. Prepayments from Forest, recorded in Lundbeck's balance sheet as the difference between the invoiced price and the minimum price of Forest's inventories, was DKK 619 million as of 30 June 2010. This compares to DKK 563 million as of 30 June 2009. Excluding related hedging contracts, prepayments from Forest are roughly unchanged. At the end of the second quarter, the inventory levels corresponded to approximately seven months of commercial supply. Sales from Lundbeck Inc. reached DKK 320 million in the second quarter. Revenue from Xenazine® was DKK 139 million for the quarter. An increase of 61% at constant exchange rates compared to the second quarter last year. Sabril® revenue for the quarter was DKK 37 million. Sabril® is the first treatment approved by the FDA for the treatment of IS, and an important new adjunctive therapeutic option for the approximately 30-36% of adults with CPS whose seizures remain uncontrolled in spite of receiving many of the antiepileptic therapies already available. The primary focus in the early launch phase is to enrol prescribing physicians in the Risk Evaluation and Mitigation Strategy programme (REMS) and increase the awareness of the new treatment among patients and caregivers. During the quarter Lundbeck and GTC Biotherapeutics (GTC) agreed to transfer the rights to ATryn® back to GTC. Lundbeck Inc. originally purchased the US right to ATryn® from GTC in 2008. Lundbeck will receive a single-digit royalty on annual net sales from GTC beginning in two years as part of the agreement. International Markets Cipralex® sales increased 1% at constant exchange rates, while Ebixa® sales decreased 6% during the quarter. Azilect® continues to only be marketed by Lundbeck in a few markets in the region and consequently contributes a relatively small share. Revenue from other pharmaceuticals was DKK 149 million, a decrease of 16% at constant exchange rates compared to the second quarter last year.
Cipralex® generated revenue of DKK 506 million in International Markets, an increase of 21% compared to the same quarter last year, and corresponding to an increase of 1% at constant exchange rates. Cipralex® sales were experiencing continued growth in most International Markets, but were negatively affected by price reductions in Turkey at the end of 2009. However, the recent trend in the Turkish market has been positive and sales are improving. Cipralex® sales were further impacted by the entrance of generic versions of escitalopram in Australia during 2009. At the end of the second quarter Cipralex® held a market share in terms of value of 11.6% of the aggregate market for antidepressants in International Markets2, compared to a market share of 12.0% in the same period last year. The reimbursement of Cipralex® in Canada continues to support revenue growth in the country and the brand now holds a market share in terms of value of 11.4% in Canada (May 2010) compared to 8.8% at the same time last year. Cipralex® in Canada now represents more than 25% of Cipralex® sales in International Markets. Ebixa® generated second quarter revenue of DKK 101 million, a decrease of 6% at constant exchange rates. Revenue continues to be negatively impacted by the presence of generic versions of memantine in Canada as well as lower prices in the Turkish market. In the second quarter Ebixa® held 8.4% of the total market in terms of value of pharmaceuticals for the treatment of Alzheimer's disease in International Markets. This compares to a market share of 10.4% in Q2 2009. Expenses
Total cost of sales decreased 2% to DKK 706 million. This corresponding to 19% of Lundbeck's total revenue, compared with 21% in the second quarter of 2009. Cost of sales in Lundbeck Inc. and LifeHealth was DKK 103 million lower than in the same period last year, as costs for the second quarter 2009 were impacted negatively by DKK 98 million, as a result of the purchase price accounting used in connection with the acquisition of Ovation. Furthermore, cost of sales for the period was affected by the higher cost of goods sold due to increasing revenue from in-licensed products (i.e. Xenazine®, Azilect® and Ebixa®). Distribution costs were DKK 914 million, corresponding to 24% of revenue and an increase of 14% compared to the second quarter last year. The increase is mainly due to amortisation of rights related to the acquisition of Lundbeck Inc. and LifeHealth (i.e. Sabril® and Xenazine®). Administrative expenses increased by 9% to DKK 504 million primarily due to costs related to Lundbeck Inc. Administrative expenses corresponded to 13% of the total revenue for the period, which is on par with the second quarter of 2009. SG&A costs were DKK 1,418 million, compared to DKK 1,264 million in the same period in the previous year. R&D costs for the quarter were DKK 707 million, a decrease of 14% compared to the same period last year. The decrease is driven by a difference in the timing of costs over the quarters, primarily due to development costs related to Lu AA21004. Furthermore, the closure of development activities related to Serdolect® contributed to the decrease. R&D costs for the period corresponded to 19% of total revenue, compared to 23% in the same period last year. For the full year, Lundbeck continues to expect R&D costs to amount to approximately 21% of revenue. Operating profit before depreciation and amortisation (EBITDA) Depreciation, amortisation and impairment charges
The large increase in depreciation and amortisation included in distribution costs compared to the same period last year, is primarily explained by amortisation of product rights acquired in connection with the acquisition of Ovation (Lundbeck Inc.) and LifeHealth Limited. Profit from operations (EBIT) The EBIT margin for the period was 24.8%, compared to 20.4% in the same period the year before. Net financials
Accounting translation of currency items was a loss of DKK 35 million for the quarter, primarily due to negative movements on balance sheet items. Net interest income, including realised and unrealised gains and losses on the bond portfolio, amounted to a net expense of DKK 24 million, as compared to a net expense of DKK 35 million in the same period in 2009. The difference was primarily due to the interest on loans related to the acquisition of Ovation (Lundbeck Inc.) paid in the second quarter last year. The loans were repaid in full in the first quarter 2010. Tax Profit for the period Cash flows
Operating activities generated a second quarter cash inflow of DKK 1,245 million compared to DKK 902 million in the same period last year. Cash flows from investing activities represented an outflow of DKK 71 million, compared to an outflow of DKK 50 million in the same period in 2009. Cash flows from financing activities were an outflow of DKK 610 million, which was primarily due to the payment of dividends. Cash as of 30 June 2010 was DKK 1,920 million. This compares to DKK 2,256 million at the end of June 2009 and DKK 1,960 million at 31 December 2009. At the end of the June 2010 Lundbeck had a net cash position of DKK 13 million compared to a net debt of DKK 365 million at the end of June 2009. Balance sheet As of 30 June 2010, Lundbeck's equity amounted to DKK 10,559 million, corresponding to a solvency ratio of 57.7%, compared to 47.7% at the end of June 2009. In the first quarter of 2010 Lundbeck finalised the purchase price allocation related to the acquisition of Ovation (Lundbeck Inc.). As a consequence immaterial reclassifications have been made within intangible assets in the first quarter of the year. Hedging Lundbeck hedges cash flow in US dollars on a rolling basis, approximately 12 months in advance. The average rate for the existing US dollar hedging contracts for 2010 is approximately USD/DKK 541. The corresponding rate for 2009 was approximately USD/DKK 536. For the next 12 months, the average rate for the existing US dollar hedging contracts is approximately USD/DKK 549. Accounting policies are unchanged compared to the annual report 2009, which contains a more detailed description of the Group's accounting policies. Protection of patents and other intellectual property rights Risk factors Conference call Income statement
Statement of comprehensive income
Balance sheet
Statement of changes in equity at 30 June 2010
Cash flow statement
Management statement We consider the accounting policies applied to be appropriate. Accordingly, the interim report gives a true and fair view of the Group's assets, liabilities and financial position as of 30 June, 2010 and of the results of the Group's operations and cash flows for the first half of 2010, which ended on 30 June 2010. In our opinion, the Management's report gives a true and fair view of activity developments, the Group's general financial position and the results for the period. It also gives a fair account of the significant risks and uncertainty factors that may affect the Group. The interim report is unaudited. Valby, 13 August 2010 Executive Management
Supervisory Board
Lundbeck contacts
About Lundbeck Lundbeck was founded in 1915 by Hans Lundbeck in Copenhagen, Denmark. Today Lundbeck employs approximately 5,900 people worldwide. Lundbeck is one of the world's leading pharmaceutical companies working with CNS disorders. In 2009, the company's revenue was DKK 13.7 billion (approximately EUR 1.8 billion or USD 2.6 billion). For more information, please visit www.lundbeck.com.
Recent Corporate Releases from H. Lundbeck A/S 5 August 2010 27 May 2010 25 May 2010 17 May 2010 10 May 2010 Please visit www.lundbeck.com for more information. 1 Xenazine® is a registered trademark of Biovail Laboratories International (Barbados) S.R.L. 2 Market shares for International Markets are based on IMS data from: Australia, Brazil, Canada, China, Mexico, Saudi Arabia, South Korea and Turkey |
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